After the boom: Buying in mining towns

The resources boom may be in decline, but up north there is still a good future for the canny investor.

It’s a headline that would sink the heart of any agent. In February, a three bedroom fibro house in Port Hedland passed in at $360,000 nearly a million dollars short of its sale price four years ago.

While we have all heard the mining boom is over, spare a thought for investors who paid top dollar for mining town properties in 2011 when talk of the future was all blue sky.

As Morag Lowe, Principal at Port Hedland First National recalls, thousands of fly-in workers were descending on a town woefully underprepared. Construction crews and executives needed accommodation and were paying top dollar for even meagre lodgings. The result: rocketing prices and rents with investors thick on the ground looking to cash in.

Thousands of fly-in workers were descending on a town woefully underprepared.

“In the Pilbara, state agencies, local government, even the mining industry found they were unable to cope,” Lowe says.

“At one point, we were the best office in First National’s network with investors making up 76% of our sales, but we pushed past the point of sustainability which was never going to last.”

Faced with exorbitant accommodation costs, mining companies set up ‘donga camps’ and as the construction phase drew to an end, so did the unrelenting demand for rentals and record prices for property.

But that doesn’t mean it’s now all doom and gloom. As Lowe points out, “last year we had 60 to 70 units vacant at any one time, but now there are only a dozen unlet.”

“The unit I own here is renting for $600 per week while an equivalent priced one I have in West Perth rents for $580 per week. Here and there, good property is still good property.”

This four bedroom home in Port Hedland with ocean views demands “investor status”.

Data on realestate.com.au’s Invest section shows that while sale prices may have come down in mining-centric towns, rental yields are still high.

Port Hedland WA

Median price – 3 bed house: $800,000

Price change – 5 years: – 13.5%

Rental yield: 9.1%

South Hedland WA

Median price – 3 bed house: $575,000

Price change – 5 years: + 0.9%

Rental yield: 8.1%

Telina (Gladstone) Qld

Median price – 3 bed house: $338,000

Price change – 5 years: – 4.8%

Rental yield: 5.2%

Broome WA

Median price – 3 bed house: $338,000

Price change – 5 years: -5.3%

Rental yield: 6.3%

So what makes for good buying in a town like Port Hedland?

The asking price is $940,000 for this three bedder in Pretty Pool.

“What I would look for is a well presented house on a decent block of land of say 700-800 sqm,” Lowe says.

“Just like other markets, Australians love a big house and while I don’t have a crystal ball, properties in the right areas should perform well over the long term.”

“In Pretty Pool, our most expensive area close to coastal breezes, a well presented four bedroom house will sell for $1 – $2 million and rent for around $1,800 per week. In nearby Cooke Point, a well presented 4 bed house will be around $800,000 – $1.2 million and rent for $1500 per week.”

Investors should only pay land value for older style fibro stock houses.

“The older style fibro stock should have been knocked over 20 years ago but got an extra lease of life thanks to the boom, but investors should only pay land value for it now.

“In South Hedland, traditionally the inexpensive region, there has been a great deal of improvement to amenity and there are occasionally good opportunities if you can upgrade a property to a budget.”

For discerning investors with a long-term view, there are still opportunities even after the boom.

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